Fitch Downgrades Commonwealth Bank, Westpac, NAB on Funding

Feb. 24 (Bloomberg) -- Fitch Ratings cut Commonwealth Bank
of Australia, Westpac Banking Corp. and National Australia Bank
Ltd. by one level, citing their dependence on wholesale funding
markets that are “vulnerable to swings of confidence.”

The long-term issuer default rating on the three Australian
lenders was cut to AA- from AA, Fitch said in an e-mailed
statement today. It also reaffirmed the AA- rating of Australia
& New Zealand Banking Group Ltd.

Fitch’s moves follow downgrades by Moody’s Investors
Service in May, and Standard & Poor’s in December, and reflect
the lenders’ reliance on offshore funding markets. Australia’s
so-called four pillar banks, so named for a law that prevents
them buying each other, derive about 40 percent of their total
funding from wholesale markets.

The downgrades “reflect the weaker funding profile of the
major Australian banks relative to similarly rated international
peers,” Fitch said in the statement. “Despite some improvement
since 2008, all four banks retain a reliance on wholesale
funding, particularly from offshore markets.”

The cost of credit-default swaps on the four lenders were
little changed after today’s Fitch announcement. The contracts,
which typically trade in line with each other, cost 145.5 basis
points as of 5:07 p.m. in Sydney, according to Westpac.

Funding Reliance

While Australia’s biggest banks have cut their reliance on
credit markets as local households save at close to the highest
rate in a quarter century, debt markets still furnish about 40
percent of the funds they use for lending. About 60 percent of
that wholesale funding comes from overseas, Fitch said.

Fitch also said in today’s statement that the use of
wholesale markets outside Australia “is managed well by the
banks” and the outlook on lenders’ ratings was “stable.” The
rating change concludes a review announced on Jan. 30.

“This change in the Fitch rating brings Fitch more in line
with S&P and we do not expect this rating change to have any
material impact on the Group’s earnings or operations,” Sharna
Rhys-Jones, a National Australia Bank spokeswoman, said by e-mail.